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Baffling Bitcoin

February 28, 2013

Left: Matt Whitlock and Zach Harvey of Lamassu Bitcoin Advisors

Bitcoin, the revolutionary cyber currency, continues to make waves. Its exchange rate is appreciating rapidly and it is discussed at many forums. While its escalating price is attractive, it is also symptom of its main weakness. But it got people thinking in a major way and as such it is already an unforgettable success.

By Anthony Migchels for Real Currencies

Here’s the story of Zach Harvey and Matt Whitlock, the young guns behind the latest innovation: a Bitcoin ATM, allowing people to pay with the in stores, restaurants and other ‘real world’ outlets. It’s an important step forward. To find wide acceptance, free market currencies need to allow both banking style on-line transactions (mainly for Business to Business transactions) and a more direct mode of payment for Business to Consumer deals. This ATM device allows B2C transactions in a modern and convenient way and certainly has the potential to greatly impact Bitcoin’s exposure and reach.

Meanwhile, Bitcoin is heavily discussed on all kinds of forums. The general trend seems to be that people more and more appreciate the idea of free market competition in currency. There are some very unfair critiques also, for instance from anarcho-capitalist outlet ‘the Daily Bell’. One would expect from them more than anybody else to endorse free market innovations, but since it is not Gold, it does not fit in their quaint notions on money. According to them the fact that Bitcoin transactions are logged and are thus traceable is probably the real agenda behind them. They seem to assume we will pay only with coin once nature has run its course. But this is nonsense, of course, we can’t do without solid on-line transactions in the modern age, not for the time being anyway. Logging is implicit in on-line banking-style transactions. The problem is not logging, but who is doing the logging and what is he doing with it. There are privacy concerns, and we’ll see if and how the market solves them, but we cannot blame such a revolutionary initiative for not being perfect from day one.

Certainly, a new currency, not centrally controlled by tPtB, a volume far less easily manipulable, showing the free market way, is a step forward.

The fact that 1 Bitcoin is now selling at 30 dollars is quite something: back in November 2011 its price stood at 6 and it’s hard to think of an asset doing better. However, basically this is Bitcoin’s main problem.

As we discussed earlier, Bitcoin is built on the premise that loss of value (‘inflation’) is the main problem with our money. It is not. Scarcity, deflation and usury are our main problems and although I’ve not yet heard of Bitcoin banking initiatives, unavoidably associated with usurious lending, it is only a matter of time. Bitcoin’s high price and continuing quick appreciation is a very solid indicator that there are not enough in circulation: demand outstrips supply and this will not change. It is also starting to look vulnerable to speculation and market manipulation. Furthermore, because it is so incredibly lucrative to hold them, people will much prefer to pay with dollars, except for the curiosity effect of paying with Bitcoin. This hoarding aggravates an already deflationary scenario and is very similar to the deflationary depression that we are facing today in the wider economy.

There is also the bizarre story of the CIA’s ‘not for profit investment arm’ (whatever that may mean) IN-Q-TEL eying Bitcoin for ‘investment’.

However, Bitcoin was designed to allow many different parameters. Different versions of it can be designed, with quite different basic rules and there are several spin-offs in development. One of these is Freicoin, which was recently released and which comes along with a ‘demurrage’: a negative interest rate, charging the holders of money, instead of the borrowers. This promotes spending the money and ends hoarding. People tend to pay as quickly as possible to avoid the, typically about 6% per year, fine. The legendary Wörgl, operational in 1934 Austria during the darkest days of the Great Depression, is the most famous example of a demurrage currency.  Most German regional currencies are equipped with it too.

In Wörgl it ended unemployment within a year and public works were renewing the whole place while the rest of Europe languished. It was so successful, the Austrian Central Bank panicked and closed it down and threatened with a military invasion when the natives got angry. Even today, the basic laws that govern banking in Euroland are explicitly formulated in such a way as to make the basic Wörgl design impossible.

Freicoin’s demurrage will probably solve Bitcoin’s main weakness. It will be interesting to see how it will perform in comparison to Bitcoin. Marketing is very important to unlock its potential.

Abundant, interest-free, free market units, perhaps like Freicoin, are more likely to really threaten the Money Power’s stranglehold over our money supply. But Bitcoin definitely is a major step forward and eye-opening for millions of people. It is a great inspiration for all monetary reformers out there.

Bitcoin, Impressive, but Flawed
Interest-Free Economics
The Swiss WIR, or: How to Defeat the Money Power
the Power of Demurrage: the Wörgl Phenomenon

  1. Nixon Scraypes permalink

    I was very curious when Soros broke sterling on black whateverdayitwas.Do currencies have to be so vulnerable?If we had an interest free currency could he destroy it on a whim?Quantatitive easing diminishes the value of money by increasing the quantity,I understand that game What I don’t know is-Is it lent at interest by the money creators, ie just more debt? I read somewhere that IMF loans must be repayed in gold,is that correct? Can you help,Anthony?

    • Hi Nixon,

      No, no of course not: currencies could of course easily be stabilized. Because the moneychangers and speculators own the politicians and the law, they are allowed to endlessly manipulate currencies with the only aim of enriching themselves. Rational currency systems, properly managed, would consider speculation abuse and would use any legal means to burn speculators, which is really very simple to organize. A few basic rules with for instance immediate confiscation of all the currency held by the criminals as an enforcement tool would end speculation over night.

      Yes, all the money used by the FED to buy up all the toxic assets is created as new, almost 0% interest debt. The new money is ‘backed’ by the ‘assets’ the Fed gets in exchange. Meaning the Fed is probably already massively under water and it is quite possible that this is the endgame that the Money Power has in mind for the Fed.

      I don’t think the IMF accepts Gold as payment for debt, but I’m not sure. The IMF is still more or less on the Dollar bandwagon and accepting Gold would be a major blow to the Dollar. I’m quite positive they don’t demand it, it would be impossible for most nations to settle in Gold.

      • REN permalink

        Wouldn’t money if it was interest free, be demurrage money by default? It is the only way I can conceive of which makes a money supply hover around zero interest rates. So, if we had international flows of currency i.e. with international trade, then the “foreign” nation holding a currency would be under pressure to spend, buying goods and services, and hence returning the demurrage money to its home. There would be little incentive to convert this type of money to bonds, and “hold” said bonds for usury.


        I’m worried about the FED being slammed in future when BRICs become reserve currency. How do all those foreign reserve dollars return to U.S. and get mopped up? The bond price will have to fall, or the FED will have to do currency swaps with their international central bank buddies. Oh what a tangled web we weave when we intend to deceive.

        If interest rates go up, bond price goes down. If bond price goes down, interest rates go up. The excess dollars returning to U.S. would need high interest rates (to soak up said dollars), meaning bond price collapse, sending a signal that dollar is weak, causing yet more dollars to return in an accelerating feedback cycle.

        If the FED could mop up dollars, they could keep them off of the domestic market. I don’t think the FED could handle it, the dropping bond price and high interest rates could break the U.S. economy, especially if BRICS and others don’t go along with currency swaps. Maybe that is the end game.

  2. Dark Dirk permalink

    I think that bitcoin will be unforgettable mistake for many people.

  3. herzmeister permalink

    I still don’t think a deflationary currency is bad in a free market multi currency world. Then it’s just an asset like many others. And a very valid and welcome one in this age of Euro and Dollar over-printing and devaluation. However, remember that there is no asset without risk, same with Bitcoin. And that’s a good thing.

    I’m still not convinced of Freicoin and demurrage. I still believe demurrage is great for a local currency to empower the regional economy against the national or global, and that’s the reason why Wörgl was successful. However in this day and age, lack of consumerism is surely no longer the problem we have. The Chiemgauer doesn’t exactly save the world, now does it. The bankers couldn’t care less about it. And in global scope, people will not adopt a currency that’s losing value without force.

    But it enables cheap or interest-free lending you say? Well for that, there’s Ripple, Bitcoin’s dual counterpart. Ripple enables peer-to-peer mutual credit. It’s being implemented seriously now in a proper distributed manner. It’s in open beta now: — it’s no longer developed by Ripple’s original inventor, but they have his blessings:!topic/rippleusers/IVin3Qwrp7k

    • You know I believe MC will win 🙂

      But it needs convertibility and that’s where bitcoin and ripple meet.

      In fact: This meeting is called the Gelre.

      • Dark Dirk permalink

        I believe that MC will never work. It’s just waste of time. In MC money is created as debt. It does not have demurrage. You cannot depreciate money and do not depreciate debt. If you do not depreciate money, they do not have insentience to circulate. MC will go out of balance. Money creation should be disconnected from debt. That is only possible when money are spent into existence and have demurrage tax witch destroys them. That is the only way you can regulate the quantity of money and force them to circulate. Debt are disconnected from money creation.

        • REN permalink

          Even if the state supplies demmurage money as seigniorage, there may be a problem with the S shaped curve of a normal economy. That is, the production cycles go up and down seasonaly, making the money supply have to surge and retreat in alingment with said cycle.

          As most here know, I favor injecting demurrage money debt free (as seingiorage) directly into the base of the population, similar to American Social Credit. To make this money have motive force, it has two liability “attractors.” Or we could call it compulsion? It moves due to the demurrage, and also taxes.

          To handle the seasonal problem, perhaps some sort of Credit is
          required. Mutual Credit has liabilites that negate within its system. So, it is money that doesn’t transfer wealth, and adds robustness to an overall ecosystem.

          I would like to see experiments, and observe first hand what really happens. Of course, money power means not divesting power downard to producers, but instead hoarding it for pride defective selfish motives.

          • Dark Dirk permalink

            “seasonal problem” ? what do you talking about ? What is this ?

            Money supply go up and down when money is created as debt. If there is no new credits, old credits get repaid and money supply goes down. Nobody takes new credit and pays interest when it is not needed (if it’s not needed in current season). If money are created as Silvio Gesell proposed etc. spent into economy, then the money supply cannot shirk rapidly. It will shrink only with demurrage tax and will be restored with government (state) payment on other projects.

          • REN permalink

            Silvio recommended injecting based on feedback, where merchants would send in tables of statistics. Silvio spent vertically from the State, down into the population. Later, Fisher and others suggested using a broad basket instead, e.g. consumer price index; this to determine money volume relation to goods production. Seasonality is surging of markets, usually in alignment with growing seasons. For example, when crops come in, new money needs to be on hand to match goods increase. The farmer bought seeds in the first half of the year, and then sold crops later in the year. In effect he borrows in the front half of the cycle and and sells in the back half, with his credit doing a bridge across time.

            This is how banking credit master’s imposed themselves on society, by creating a solution to a need that was not met. It may well be that demurrage money can be sourced in enough volume to match “goods” increase during seasonality cycles. Injecting into the base of the population (families), as I suggest, should have enough “savings” supply on hand, but some sort of credit backstop may be required. It can only be determined with experimentation.

            Like gravity, we can use double entry credit to its advantage. I hiss, I also hate banker credit, with a passion. Credit of this type comes into being and then extinguishes after returning to ledger. In some limited cases maybe that can be put to use. But, for sure, bankers should not be making money. Any credit of this type should have strict limits and be controlled like nuclear material. For example, AMI proposes all credit in “Chicago Plan” be denominated in state assets, that way it can be jubileed. (I’m not sure how that works so if anybody knows, I’m all ears.) Mutual Credit is yet another type of credit with its own behavior. Each unit has different properties.

            We monetary thinkers should have a standard language we can use, but it appears we don’t.

            Taxing is a blunt instrument, with a slow drain rate – and actually government usually recycles with spending and redistribution, rather than terminating money. Silvio wanted to burn money in an oven, and actually terminate it as necessary. Demurrage taxes will tend to recycle back into money supply, and not drain to termination, unless there is a policy choice. There are cases where maybe money may need to come into being rapidly and then rapidly drain to extinguish, thus meeting the transient needs of producers and consumers. It’s a thought experiment, even though double entry credit is very dangerous. It may be that high levels of demurrage money savings (at zero interest) would source enough supply to match the S curve. I don’t know.

          • “Silvio recommended injecting based on feedback, where merchants would send in tables of statistics. Silvio spent vertically from the State, down into the population. Later, Fisher and others suggested using a broad basket instead, e.g. consumer price index;”

            I’m not really sure how real this problem is. In a demurrage environment with very high velocity the total amount of money in circulation will be very small in comparison to GDP. In the sluggish ways of today, with money changing hands only twice a year (in good times), the money supply is not much smaller than the economy.

            This means that the dumurrage taken is really insignificant compared to turnover. 6% of a small amount of money is very small indeed.

            People will know and realize this and, while not maintaining much of liquidity (the goal of demurrage), will not mind losing a little bit here and there. It will just not be much of an issue. The amount of money involved is too insignificant.

            Demurrage promotes paying in advance (to get rid of depreciating cash). Seasonal issues will be foreseen by the market. Retailers will pay in advance to farmers and wholesalers during the winter to get rid of excess liquidity and to prepare for seasonal activities. This will happen throughout the supply chain.

            Having said that: the flexibility of MC is just too grand to let go of. I also don’t see the problem of slapping a demurrage on MC, or having the whole money supply MC based, taxed with demurrage to avoid hoarding and alleviate total debt (even when interest-free, the debtor is in some kind of bondage to the community and this must not be allowed to be more than necessary).

            “We monetary thinkers should have a standard language we can use, but it appears we don’t. ”
            Absolutely REN, we need to learn the lingo associated with all strains of thought to be understandable to all in the field.

          • Dark Dirk permalink

            Anthony, REN, thank you for new information. I love to learn new knowledge.
            Again on MC. Lets imagine that you are running MC system, how you are going to apply demmurage in it ? I see two ways:
            First way: You can deprecate credit and debit to balance the system. But debtors will be tempted to postpone repayment of debt, because they will receive debt discount. Pay $100 today, return 94$ after 1 year. You end up with spending incentive and debt postponing incentive. Is that bad ???
            Second way: You can deprecate debit and do not deprecate credit. In this case demmurage will destroy the money needed to return debts and some kind of central authority will have to spent some money on some projects in order to restore the money supply.

            Is there a third way ?

            More questions:
            1. How big should be the allowed credit without collateral ? Are you going to change it over time or it will be fixed ?
            2. When someone should receive credit right ? Newborns ? or at fixed age ? If newborns receive credit rights, some bad people (gipsies) will make more children in order to receive more credit.

          • Nono, the demurrage should only be charged over positive balances, not over negative ones, let alone encouraging debt.

            Demurrage does not destroy the money Dark Dirk: it’s used by the issuing organization for its operational costs, ie it is spent back into circulation.

            The collateral depends on the issuing organization and its aims. Some will want to see collateral for every cent in circulation, some will experiment with ‘softer’ money. It’s also good to be flexible and learn from practice.

            You’re right with your gypsy example. Sounds like it’s best to give credit rights when coming of age.

  4. Freicoin and demurrage is genius! Make peoples money supply evaporate. That will be really motivating for people to buy some of those!

    • 🙂 Just spend the money! No harm done!

      The money supply remains stable under demurrage: the demurrage is spent back into circulation.

    • Dark Dirk permalink

      The idea is not to buy some of those. This is NOT investment. It’s prove of concept. The main currency should be with demurrage and it should be the only legal tender in the country. Only in that way money should circulate with high velocity and be will be stable. People should invest in other things, not money. They should buy shares, stocks, gold, silver, whatever they think will have value in feature, but not money. Money are means of exchange and should NOT be stopped from circulation and saved. When you stop money (save them), with what you will be payed ? So if money are saved, the more money should be printed in order to fulfill the gap left behind the saved money and of course interest can be charged.

  5. Best comments on deflation in this video:

    • Yeah, I’ve seen this vid, it’s the usual austrian whitewashing of deflation. Reality looks something like this:

      – When money appreciates, SO DO ALL OUTSTANDING DEBTS. And of course the usury paid over them becomes more precious too. Perhaps not good, with everybody so massively under water.

      – When people can make money by sitting on it, they don’t invest, strangling the economy. That’s exactly what is going on TODAY Steven, and that’s one of the key reasons Austrianism is made so big by the Money Power: it is obscuring the economic reality of the biggest crunch ever.

      – When money appreciates, ALL OTHER ASSETS DECLINE. Also labor, which is the only thing that the 50% of Americans with zero assets or less have to offer.

      – Deflation is always a wealth transfer to those holding money. Very few do.

      As you can see: deflation really is very profound disease, not a boon.

      This makes Bitcoin good for hoarding and as long the ponzi effect of ever more new buyers continues, it will be strong. But it will never be used to pay with, until it starts to depreciate.

  6. Abu Aardvark permalink

    Back to criticizing The Daily Bell, are you? Some kind of fixation? Or is someone putting you up to it? Maybe this is part of your policy of removing posts that mention you apparently ripped off shareholders, Anthony?

    Let’s see how long this post lasts, or if it goes up at all.

    I’m keeping track and I am sure others are too, Anthony. You’ll be exposed for what you really are sooner or later. Your scammy attack on the freedom community is obvious at this point. As is your love of the Fabian Gessel. Are you a Fabian, too? Sure seems like it.

    • It’s great to see you still hurting Abu!

      You guys certainly got your asses whipped and I really enjoyed killing your stupid ‘explanations’ for usury and deflation.

      I’ll keep at it too!

      I’ll leave this comment on just for my own amusement, but will keep tossing the rest out.

      • Abu Aardvark permalink

        Well, that is more like it, Anthony. Glad you are playing fair again. Now can you explain why you are PAYING Google to post various slanders at the top of Google?

        Who is funding you? Who put you up to this?

        And while you are it, can you re-post the material you took down? You pretend to be a freedom fighter but all you and your “friends” do is attack the freedom community – but then you are too cowardly to post responses.

        It would be great to hear your explanation about why Silvio Gesell aligned himself with the socialist/fascist Fabians and why your hero Margrit Kennedy and her husband BOTH found employment at the United Nations for many years.

        And Hitler and his economic planners as well … What is it about Nazi Germany that fascinates you so? Why did you write that we needed to put the entire economic plan of the Third Reich into practice?

        The UN, the Fabians, Nazi Germany. Paying Google for rankings. Misleading people about your plans – by your own admission.

        Why don’t you “come clean.” You will feel a lot better.

        • Oh, Abu, this is just so wonderful, you are making me so happy that I’m going to leave this one on too.

          I’ll even answer your questions, since they are so endearing in their stupidity.

          I don’t pay Google anything. I don’t know with what, since I’m surviving from day to day. Truth does not get any funding, you know that. To be honest, I didn’t even notice Real Currencies is up high? Is it? I guess they’re just there because they’re relevant and because so many sites link to them and because anti usury activism is not really on their radar yet. Which will change.

          But perhaps you can pay them to mess up our page rankings? After all, with the international banking buddies behind you and your friends (btw, who are you, Anthony Wile?), that should not be a problem! They do it all the time, and with lesser issues too.

          Your misrepresentations are so childish and silly. Just a few weeks ago I explained that Nazism was not quite the answer to the Money Power, not in the least because Nazism is basically a textbook implementation of the last few chapters of the Protocols, in which they describe how their kingdom will be run.

          I have continuously and consistently maintained that: 1. A government monopoly is better than giving that monopoly away to a private cartel 2. But that Government would love to replace the Money Power and that if it insists on generating money, it must do so by giving the cash to the people to spend into circulation, so that power would not be centralized at Govt level. 3. That it is better is to have competing currencies, in which various usury free Mutual Credit units would win.

          Of course, in my discussion with you and your elves on your site, let alone the travails of my good friend Memehunter, you consistently exposed yourself as lying hypocrites in the way you continuously misrepresented our positions, just as you did again now. It was really funny (although tiring) and really eyeopening to many of your fans. The less endowed were just pissed off that their heroes were exposed, and they are still with you. But don’t worry: propaganda is always aimed at the bottom 20%, so you’ll still have your impact.

          It is that continuous lying and the consistent refusal to face the facts that made Memehunter and myself (and let’s not forget Jason!) look into the backgrounds of libertarianism and your own little enterprise. We all know where that led to, hahaha. It certainly was and remains a crowning achievement of which I’m really a little proud, you know that?

          Very funny (and typical!), how you ‘accuse’ me of not allowing answers. After seeing how you dealt with some real opposition, based on arguments, instead of misrepresentations. You were losing so many readers because you got tanked on every serious monetary issue that Memehunter discussed with you, and of course your debating techniques that were quite obvious and which we also exposed, that you had to close down your comment section.

          The only people I kick off are you and Kaj and every other future bloodsucker that is just making noise without really listening, learning and giving back.

          I don’t know about Kennedy and the UN. She’s got it right with usury, but she’s a little naive as to the rest of the workings of the world. Perhaps she just wisened up later in life. I used to work for the Government when I was still young and pretty (and stupid). She’s got a green background and I have no love for the sanctimonious ‘savers of Nature’. I don’t blame her: most are and she’s a German and for that People it is extra difficult to escape the Matrix as they were so horribly bludgeoned into submission. They’re awakening too, though. And the Germanic Spirit certainly is a force to be reckoned with. Her achievements regarding Usury are legendary and will long, long survive ‘libertarianism’ and ‘austrianism’ which are dying, not in the least because of the work Meme and I did. Although Paul’s backstabbing helped even more, of course. What a one of a kind asshole that is, no wonder you people like him so much.

          You guys made a good point about LETS and the UN and I’ll tell you why they promote it: LETS is inadequate for several important reasons. I intend to write on that, but I’ve got other issues to deal with.

          Hush now, however pleasant it is to play around with you now and again, I have said issues to attend to.

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